Potential Output

The-key concept for understanding aggregate supply is potential output or potential GDP. Potential output is the maximum sustainable output that can be produced without triggering rising inflationary pressures. Norther long run, aggregate supply depends primarily upon potential output. Hence, long-run AS is’ determined by the same factors which influence long-run economic growth: the amount and quality of available labor, the quantity of machines and other capital goods used by workers, and the tech no logy.

The analysis of long-run growth trends therefore concerns both the growth of potential output and the determination of aggregate supply Potential CDP is the highest sustainable level of national output. We,measure potential CDP as the output that would be produced at a benchmark level of the unemployment rate called the (or the XURl.’). Current estimates of the for the United rates are in the of 5 to 6 percent of the labor force. Potential output is a growing target. As the economy grows, potential output increases as well, and the aggregate supply curve shifts to the right. Table :31-1’shows the key determinant ts of aggregate supply, broken down into factors affecting potential output and production costs. From our analy is of economic.

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